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A fuzzy logic approach to modelling the New Zealand underground economy

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  • Draeseke, Robert
  • Giles, David E.A.

Abstract

The availability of data for the size of the “underground economy” (UE) is important for macroeconomic policy. We use fuzzy set theory and fuzzy logic to construct an annual time-series for the (unobservable) New Zealand UE over the period 1968–1994. Two input variables are used—the effective tax rate and an index of the degree of regulation (REG). The resulting UE time-series is compared with one previously constructed by the second author using a structural “multiple indicators, multiple causes” (MIMIC) model. The two approaches each yield sensible, but somewhat different, pictures of the New Zealand UE over this period. The fuzzy logic approach to this measurement problem involves several subjective judgements, but our results are quite robust to these choices.

Suggested Citation

  • Draeseke, Robert & Giles, David E.A., 2002. "A fuzzy logic approach to modelling the New Zealand underground economy," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 59(1), pages 115-123.
    • Handle: RePEc:eee:matcom:v:59:y:2002:i:1:p:115-123
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    References listed on IDEAS

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    1. David E. A. Giles, 1999. "Modelling the hidden economy and the tax-gap in New Zealand," Empirical Economics, Springer, vol. 24(4), pages 621-640.
    2. Rajat Deb & Manabendra Dasgupta, 1996. "Transitivity and fuzzy preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 13(3), pages 305-318.
    3. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    4. Gregory Richardson, 1998. "The structure of fuzzy preferences: Social choice implications," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 15(3), pages 359-369.
    5. Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February.
    6. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    7. Kunal Sengupta, 1999. "Choice rules with fuzzy preferences: Some characterizations," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 16(2), pages 259-272.
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    Cited by:

    1. Yu, Tiffany Hui-Kuang & Wang, David Han-Min & Chen, Su-Jane, 2006. "A fuzzy logic approach to modeling the underground economy in Taiwan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 362(2), pages 471-479.
    2. Günçavdi, Öner & Küçük, Ali Erhan, 2013. "Investment expenditure and capital accumulation in an inflationary environment: The case of Turkey," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 554-571.

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